Oprah May Mean Big Bucks For Discovery2/10/2010 10:24 AM Eastern
The 2011 launch of its joint venture with Oprah Winfrey - the Oprah Winfrey Network - could mean higher carriage fees for Discovery Communications, CEO David Zaslav told analysts Wednesday.
On a conference call to discuss fourth -uarter results, Zaslav said that Discovery Health - which will be rebranded and recast as OWN in 2011 - currently is available in about 75 million homes. That should rise to between 77 million and 80 million by the time OWN launches, he said.
With that broader subscriber base, and the backing of entertainment juggernaut Winfrey, Zaslav said the fortunes of the channel should improve dramatically.
"We have a fantastic brand, and with Oprah behind us, we are looking to get more carriage for the channel and a different compensation structure over time," Zaslav said. "Over time, distribution will grow and we will get meaningful fees for high quality content."
According to SNL Kagan, Discovery Health attracts carriage fees of about 12 cents per subscriber per month. It has been estimated that OWN could attract rates as high as 40 cents to 50 cents per subscriber.
While operators may have to pony up more for OWN, Zaslav was a bit more cautious concerning making Discovery programming available online. For the most part, Discovery has resisted putting long-form programming on the Web, opting instead to provide clips and other short-form content aimed at driving viewership on the television. That strategy appears as if it will remain in place.
Zaslav aid that Discovery is always looking for new ways to reach consumers and to drive value, but also recognizes "the value of our cable business."
Overall, Discovery turned in another strong quarter, with revenue up 7% to $964 million and adjusted operating income before depreciation and amortization up 8% to $390 million, fueled by increases at its international and domestic networks. Domestic ad revenue rose 2% to $287 million in the quarter and international ad sales jumped 33% to $130 million. Adjusted OIBDA for the domestic networks fell 4% to $289 million and rose 42% on the international side to $152 million.
For the full year revenues of $3.5 billion increased 2%, primarily driven by 4% growth at U.S. Networks and 3% growth at International Networks. Adjusted OIBDA increased 12% to $1.5 billion led by 8% growth at U.S. Networks and 16% growth at International Networks. Adjusted OIBDA margin for the full year increased to 42% from 38% in 2008.
Free cash flow for the year rose 18% to $551 million - it was up 84% to $236 million in the quarter.